Finally had some time to get back to this project.
I received an Information Circular in the mail with a figure diagramming the relationship of entities associated with Creststreet Power and Income Fund (CPIF)in the Pubnico Point, Mt. Copper and Kettles Hill projects that was very helpful for me in understanding the structure of things. As far as I can tell, the A and B shares were previoulsy all held by the initial seed capital and test turbine construction limited partnership investors as shares in the individual limited partnerships, not as shares of CPIF. CPIF has purchased most or all of the A shares from the Pubnico Point and Mt. Copper partnerships making CPIF the majority, controlling owner of each of these entities. Some or all of the original investors in the early partnerships still hold B shares in those partnerships. These B shares are structured somewhat like a gross profit royalty that kicks in above defined threshholds:
From the 2005 annual report-
1) Pubnico Point- Holders of the Class B shares (of Pubnico Point ltd. Ptnshp) will be entitled to cumulative dividends based on the annual level of operating cash flow achieved by Pubnico Point. If the operating cash flow is below $4,750,000 per year (the “Pubnico Point Hurdle Cash Flow”), the dividends on the Class B shares will be nil. Commencing the month during which the Pubnico Point Facility is commissioned, the Class B shares will be entitled to dividends equal to 70% of the annual operating cash flow above the Pubnico Point Hurdle Cash Flow. For the year ended December 31, 2005, $408 was paid to the Class B shareholders.
2) Mt. Copper- Holders of the Class B shares (of Mt. Copper ltd. Ptnshp) will be entitled to cumulative dividends based on the annual level of operating cash flow achieved by Mount Copper. If the operating cash flow is below $9,000 per year (the “Mount Copper Hurdle Cash Flow”), the dividends on the Class B shares will be nil. Commencing the month during which the Mount Copper Facility is commissioned, the Class B shares will be entitled to dividends equal to 50% of the annual operating cash flow above the Mount Copper Hurdle Cash Flow. No dividends had been paid as at December 31, 2005.
For people that are as ignorant as I am, some definitions of "operating cash flow"-
What is Operating Cash Flow (OCF)
--Operating cash generated by the operations of a business, generally defined as revenues less all operating expenses, but calculated through a series of adjustments to net income. The OCF can be found on the “statement of cash flows”.
Calculated as OCF = EBIT + depreciation – taxes.
(EBIT, earnings before interest and taxes)
--Operating cash flow is the cash that a company generates through running its business.
It's arguably a better measure of a business's profits than earnings because a company can show positive net earnings (on the income statement) and still not be able to pay its debts. It's cash flow that pays the bills!
You can also use OCF as a check on the quality of a company's earnings. If a firm reports record earnings but negative cash, it may be using aggressive accounting techniques.
investopedia.com
In hindsight I would have waited for at least 2 quarters of results from the Kettles Hill project (mid-2007?) in Alberta before taking a position in CPIF if Kettles Hill performs to specs. If the Kettles Hills Project performs below projections then the divies will be put under severe pressure as Mt. Copper appears to be operating under projected levels. If KH functions as promised, then CPIF will have a solid revenue base going forward. |
